TAX NEWS - may 2010
Australia Tax: Budget 2010-2011 and government response to Henry Review
Resource super profits tax
The government announced a new resource super profits tax (RSPT) on natural resource extraction projects, including mining and petroleum. This 40% RSPT will commence as from 1 July 2021 and applies in addition to normal corporate tax. Certain offshore petroleum projects are currently within the scope of the existing petroleum resource rent tax and will be excluded from the RSPT (unless the taxpayer elects into the RSPT regime). The government will undertake consultation with the resources sector and it is not expected that any draft legislation will be introduced before June 2011. Additionally, an exploration incentive via a refundable tax offset will be introduced effective from 1 July 2021 on exploration expenditure.
Corporate tax rate reduction
Company tax rates in Australia will decrease from the current 30% down to 29% for 2013-14 and 28% for 2014-15. Small businesses will apply a 28% corporate tax rate as from 2012-13.
Depreciation - small business
For small businesses, an immediate capital allowance write-off will be permitted for depreciating assets costing less than AUD 5,000. Further, all other assets (except buildings) can be pooled and depreciated at a single pool rate of 30% per year, using a declining balance method.
Compulsory superannuation payments by employers for their employees will increase incrementally from the current rate of 9% to 12% by 2019-20. The age limit for these compulsory superannuation payments will also increase from 70 to 75.
For individuals, a standard deduction for work-related expenses of AUD 500 will be introduced as from 1 July 2012. This deduction will be increased to AUD 1,000 from 1 July 2013. However, expenses above these standard amounts can still be claimed (although entailing additional compliance). Additionally, from 1 July 2011, there will be a 50% tax discount on the first AUD 1,000 of interest earned.
From 1 July 2010, the marginal tax rates for Australian resident individuals will be as follows:
Income range (AUD) Tax rate (%)
0 - 6,000 0%
6,001 - 37,000 15%
37,001 - 80,000 30%
80,001 - 180,000 37%
180,001 and up 45%
Capital gains tax rollovers
The government announced a number of changes to capital gains tax (CGT) rollovers in the Budget. The government announced that scrip-for-scrip CGT rollovers in the context of takeovers and mergers will now be available for Australian shareholders in cases where foreign residents' interests are sold on their behalf so that they receive cash under a share sale facility. Such a share sale facility may have breached the conditions for such rollover prior to the announcement.
The CGT demerger provisions will be amended to enable greater accessibility to the demerger rollover for "companies sole" (i.e. companies with no shareholders) and complying superannuation entities.
Financial services reforms
The government has announced various tax changes to enhance the international attractiveness of the Australian financial services industry.
The interest withholding tax for Australian and foreign financial institutions operating in Australia will be reduced from 10% to 7.5% as from 2013-14 and to 5% as from 2014-15. The government is favorably disposed to eliminating interest withholding tax completely in the longer term. Foreign bank branch funding from the head office also will be reduced from 5% to 2.5% in 2013-14 and to 0% in 2014-15.
The government plans to introduce an Investment Manager Regime, whereby non-Australian residents investing in non-Australian assets through Australian fund managers will not face further Australian tax on their investments (conduit relief). Australia is generally adapting its tax regime to support the Australian funds management industry. Consultation is currently taking place on the Investment Manager Regime.
Research and development
The current R&D tax concession will be replaced with an R&D tax credit, applicable to income years commencing from 1 July 2010. This change had already been announced and has been the subject of extensive consultation.
Goods and services tax
The application of GST on cross-border transactions will be reviewed, with changes effective as from 1 July 2012. The reform limits the jurisdictional reach of Australian GST and is intended to reduce the number of foreign residents unnecessarily caught by the tax. The GST financial supply provisions also will be amended, effective from 1 July 2021 with the financial acquisitions annual threshold increasing from AUD 50,000 to AUD 150,000.